redemption rights

Definition

Contract provisions allowing investors to force the company to buy back their shares after a certain period, typically if there's no exit. A rarely exercised nuclear option that reminds founders who really has the power.

Example Usage

The redemption rights kicked in at year seven, allowing investors to demand repurchase at fair market value, which the cash-strapped company obviously couldn't afford.

Origin

Preferred stock provisions adapted from corporate finance, included in venture deals since the 1980s

Fun Fact

Redemption rights are almost never exercised because companies rarely have cash to redeem shares, making them more useful as negotiating leverage than actual exit mechanisms.

Source: Venture capital term sheet terminology

Related Terms

Intermediate

seedbed

A literal plot of dirt prepped for seeds, or metaphorically, any environment ripe for nurturing nascent ideas—like Silicon Valley for startups or your uncle's garage for questionable business ventures. In startup parlance, it's where brilliant innovations and terrible ideas alike take root before anyone can tell which is which. The key difference from an incubator? Seedbeds are cheaper and smell more like actual dirt.

🚀 Startup / VC

Intermediate

dragalong rights

A provision forcing minority shareholders to join a sale if majority shareholders approve it, preventing holdouts from blocking acquisitions. Democracy dies in shareholder agreements.

🚀 Startup / VC

Intermediate

dilute

The art of watering down your ownership stake in a company, usually because someone with deeper pockets decided your equity pie needs more slices. In the startup world, this happens when new investors come aboard and everyone's percentage shrinks faster than your enthusiasm during Series D. It's not personal, it's just cap table mathematics.

🚀 Startup / VC

Beginner

Incubator

A program that nurtures early-stage startups by providing office space, mentorship, and a false sense of security. It's called an incubator because, much like the medical device, it keeps fragile things alive that probably wouldn't survive in the real world.

🚀 Startup / VC

Intermediate

pivot or die

The startup mantra that romanticizes abandoning your original business plan when it becomes clear nobody wants what you're building. It's plan B through Z, pitched as strategic thinking rather than desperate flailing.

🚀 Startup / VC

Intermediate

prospectus

The glossy sales document that makes every investment opportunity look like the next Amazon and every university look like Hogwarts, carefully balanced between legal obligation and marketing fantasy. In startup land, it's the formal document that transforms 'three guys in a garage with an app idea' into 'disruptive technology platform poised for exponential growth.' Every prospectus contains enough disclaimers to absolve everyone of everything while somehow still convincing you to hand over your money.

🚀 Startup / VC

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